EU Carbon Has Record Gain as Germany Considers Oversupply Fix

By Mathew Carr and Stefan Nicola -
Feb 1, 2013

European carbon jumped by the most
ever after German Chancellor Angela Merkel said she backed moves
to claw back renewable energy subsidies and as the nation
considers ways to fix a glut of greenhouse-gas allowances.

European Union carbon permits soared as much as 29 percent
today after Merkel told reporters in Berlin that Environment
Minister Peter Altmaier’s proposals on changing the country’s
clean-energy subsidy system to keep costs in check are
“important, good.” The government may ask owners of renewable-
power generators to take a one-time cut in their so-called feed-
in tariff, Altmaier said Jan. 28.

Carbon prices were also boosted after Altmaier said Germany
may clarify its position in the next two months on the EU’s plan
to temporarily cut supply by 900 million metric tons through
2015 in a process known as backloading. The bloc’s climate-
protection program is the world’s biggest by traded volume.

Subsidies to new projects may also be delayed to help curb
costs, Altmaier said Jan. 28.

“Should subsidy reductions lead to fewer renewable-energy
projects, then we could see that translate in greater demand
than there otherwise would be if those projects had taken
place,” Eric Bickel, an analyst at Summit Energy Services in
Louisville, Kentucky, said today in an e-mailed response to
questions.

Carbon Glut

The carbon-permit glut, which will reach about 1.8 billion
tons by April, was formed when factories and power stations cut
energy use and the need for emission allowances after the
European market started in 2005. The euro area’s second
recession since 2008 has damped industrial demand for permits,
driving their price to record lows.

Germany has been undecided on whether to support the
European Commission’s plan to temporarily curb the carbon glut.
“We will have to position ourselves when the issue arrives at
the council of ministers in mid March,” Altmaier said.

Merkel is under pressure from voters and electricity
consumers to cut subsidies and keep power prices as low as
possible, said Jens Teresniak, an energy economist in the
trading and generation unit of Stadtwerke Leipzig GmbH in
Leipzig, Germany. Still, just because Merkel agrees with
Altmaier on cutting renewable energy subsidies doesn’t mean she
will support him on backloading, he said today by e-mail.

Cutting Costs

Europe should consider cutting costs for consumers by
rewarding renewable power and energy efficiency through the
region’s carbon market rather than through expensive subsidies
to utilities, Klaus Schaefer, the head of EON SE’s trading unit,
said in an interview Nov. 21.

“Germany is more likely to support backloading, but its
endorsement is still far from guaranteed,” Itamar Orlandi,
analyst at Bloomberg New Energy Finance in London, said today in
an e-mailed note.